Property vendors turn bankers to beat debt squeeze
LONDON (Reuters) - Plucky property sellers are morphing into lenders to soothe Britain's real estate debt famine and turn dealmaking hopes to reality, in moves that may break the banks' stranglehold on big-ticket property deals.
Aviva Investors (AV.L) has thrown the issue into relief by offering debt funding to the successful bidder for a 750-800 million pound portfolio of 47 retail parks, offices and warehouses code-named "Project Ed".
The growing trend of vendor-arranged debt has sparked signs of life in Britain's listless real estate sector, flushing out buyers who fled when the boom turned to bust. Brokers believe the trend may in time coax typical lenders out of hibernation.
"If we see more big portfolios come up, and the debt markets have not loosened, we will see more of these types of stapled finance deals," said Cushman & Wakefield partner Alastair Hilton.
"This trend may even encourage them (banks) back," he said.
The competitive chase for "Ed" has surprised some experts -- especially since UK commercial property transactions plumbed their lowest depths this decade in the first quarter, with just 3.6 billion pounds of deals, CB Richard Ellis data shows.
SWEETENER
Rumours abound that Aviva Commercial Finance has offered 75 percent of the required capital to buy the portfolio for a seven-year period at 275 basis points over LIBOR. A spokeswoman for the company declined to comment on the terms.
The structure echoes the deal between HSBC (HSBA.L) and Spain's Metrovacesa (MVC.MC) when the ill-fated property firm bought the bank's skyscraper offices in Canary Wharf for a record-breaking 1.1 billion pounds in April 2007.
"Project Ed" is not the first time Aviva has taken up the pseudo-banker role. In March, its Norwich Union unit provided 500-550 million pounds of debt to F&C REIT to help it buy 211 properties previously owned by the failed Dawnay Day Group.
Now, Aviva is seeking a sale to rebalance its over-exposure to UK property. The stapled finance deal will reduce its asset management responsibilities and enable it to preserve an interest in the future growth of the portfolio.
The assets have an average unexpired lease term of more than nine years and are let on more than 250 tenancies.
Aviva Investors' head of Aviva Life Funds -- UK Real Estate, Joel Lindsey, said the portfolio was possibly one of the largest and most diverse collections of quality UK commercial properties to come to market this year.
"There have been increasing signs of late that UK and overseas investors are looking to move back into UK commercial real estate and the opportunity to secure debt financing is likely to further support that interest," Lindsey said.
Despite the stapled finance package, some property market experts feared the deal could still fail at the final hurdle. Continued...
